Getting a Grip on Ridesharing Coverage

Ridesharing services are becoming increasingly popular among consumers looking for a more convenient alternative to taxis or other forms of public transportation, and start-up ridesharing companies have been cropping up everywhere trying to ride the heels of the success experienced by the three major transportation networking companies – Uber, Lyft and Sidecar.

But insurers have been a little slower to hop in the backseat of this journey. Insuring this class isn’t easy because it is hard to address the different exposures and get adequate rate, says Mark Maucere, senior vice president for AmWins Transportation Underwriters Inc. in the Indianapolis office.

“Our rate [for transportation classes] is based on a point A to point B mechanism and the problem with these operations is we don’t know when the car is out or in the garage, we don’t know the experience of the driver, car maintenance or in what other ways it is used,” says Maucere.

AmWins Transportation Underwriters insures limousines, taxicabs and public auto transportation like vans and private passenger services, but currently has enacted a moratorium on new ventures because of the ridesharing trend.

“A lot of drivers think they are covered under their personal auto coverage, which they aren’t because it is excluded, so they realize they need commercial coverage and come to us for insurance,” says Maucere. “The problem is it is so new that you really have to ask the questions ‘What are you doing?’ and ‘Are you using a dispatch service?’ We aren’t saying it’s not a good risk but it’s a risk we can’t get our hands around yet.”

Maucere says the differences between TNCs and those of a taxicab is the taxi has earned a medallion or paid for one from their municipality and they are not easy to acquire. Taxi and other private passenger auto drivers also have experience with transporting passengers in their vehicle and the distractions that can come along with that. Taxi companies also make sure drivers are maintaining their vehicles.

Maucere says until they get a better handle on how to best insure start-up ridesharing companies, which will require state legislation that will hold all TNCs accountable for vetting their drivers and ensuring passenger safety, AmWins will be avoiding the business.

“There is an opportunity here and we would be interested in potentially looking at these classes of business if we could properly underwrite and put the rate around it,” says Maucere. “But it’s very difficult until you can grab that data and verify some of the things we can’t verify now.”

Excess & surplus lines insurer James River has insured two of the big TNC’s, Uber and Lyft. According to John Clarke, vice president of marketing for James River, the carrier was approached by a wholesale broker to write very specific coverages for the new industry.

Despite the fact that James River is not an auto market and doesn’t write taxi or trucking classes, as they learned about the companies and how they track miles, vet drivers, and the technology behind them, the carrier became accepting of the risk, Clarke says.

Clarke says there were no rules or precedents to follow when they began to structure the policies since this type of business had never been done before, but James River was able to accommodate the insurance structure the TNC’s requested and has since responded with different component features as the industry has evolved. The three major parts of coverage for TNC’s includes:

Core policy with $1 million limit that drops down and covers the driver when the driver has accepted a rider and is en-route to pick them up; then taking the rider to their destination and dropping them off. The core policy also covers Uber and their parent company, Rasier. This “ride” policy is a contingent excess commercial auto policy with Rasier (and specified subsidiaries like Uber) named as insureds. It is contingent in that the driver’s primary coverage is that of their private passenger auto policy, the policy which also satisfies any financial responsibility requirement in their particular state. In the event that coverage is declined by a driver’s PPA insurer, the Rasier (Uber) ride policy will step in to provide coverage to the driver as well. This policy carries a $1 million CSL limit and applies from when a ride request is accepted until the rider is delivered to their destination.

Coverage with a lower limit for when the driver is logged on with the TNC and is sitting or driving around waiting to be dispatched to pick up a rider. Structured like a typical auto policy with a per person limit, per event limit and a property damage limit.

Separate coverage purchased by the TNC for physical damage to the drivers vehicle if damage occurs while the driver is using the vehicle for commercial (ridesharing) and not personal means.

Gus Fuldner, head of insurance for the San Francisco-based Uber, says they have developed a partnership with James River in building their insurance program to also address the peculiarities in each state and nationally.

“The overall principle that we target is fairly straightforward – while a driver is on a trip or there is a passenger in the car, we want the passenger, driver and any other party to be protected by insurance that is as good or better than a limo or taxi in that same jurisdiction,” says Fuldner.

While the aforementioned policy has been the insurance model Uber has used so far, Clarke says this class is constantly evolving with new technology and legislative requirements so no one really knows what model will be the most effective down the road.

For the forseeable future, however, this business is definitely a surplus lines risk, he says.

“This is a classic example of the nonadmitted market doing exactly what it is supposed to do – write a new business that cannot get insurance in the standard market,” he says. “The private passenger auto companies won’t do it so where do they go to get insured? They come to us because that’s what we do. Then when it becomes mainstream the admitted market will come in and take the business. That’s the natural lifespan but right now it has to be in the surplus lines market.”

Fuldner says working with a surplus lines insurer has also been a benefit to Uber.

“We have a very collaborative relationship with the insurer and that is one of the big advantages of working with a surplus lines market. They have the flexibility on both the changing markets and the feedback we get from constituents,” he says. “The surplus lines industry is going to play an important role in the development of this market.”

The major TNC’s that have been successful so far are growing larger every day, says Clarke, making it hard for start-ups and smaller competitors to keep up – especially those that don’t follow the same strict business practices. The leading TNC’s take safety and the vetting of their drivers very seriously, he says, which includes making sure drivers have a valid driver’s license and insurance, performing background checks, and monitoring feedback and ratings of drivers.

Drivers can also only pick up riders through the app and are prohibited from picking up people “hailing a cab.” Clarke says if a driver violates this condition their insurance coverage does not apply and they are in violation of their agreement with the TNC. They also have to identify themselves as a TNC driver when they arrive to pick up a passenger and Uber and Lyft have identifying features on their vehicles so riders know they are getting in an approved vehicle.

“These transportation networking companies are very concerned about doing this properly and it is in their self-interest to make sure their drivers do it right,” says Clarke. “These guys are extremely well-capitalized and financed and they are building a business for the long haul.”

With that in mind, Clarke doesn’t see a lot of opportunity for start-ups in this space because of the barrier to entry set by these big TNCs. That leaves scant opportunity for agents and brokers too, says Clarke, because the successful TNCs have already partnered with large brokers. There is also the uncertainty of what will happen with legislation and how that will affect the development of the industry.

He does expect that taxi and limo companies will have to adapt to this new “social” way of doing business if they want to compete with these TNC’s, and that will create challenges and opportunities for the insurance industry as well.

“Nobody wants to stand in the way of innovation, but we have to figure out how it’s all going to work together,” says Clarke. “It’s a really interesting industry that we have watched be completely created in the last two years. Someday I think our children will laugh at us for waving our arms on the corner for a taxi.”

Uber has also worked closely with personal lines carriers that sell commercial insurance to educate them on how the ridesharing business works with the hope that insurers will embrace this emerging market.

“Often times carriers are selling a very similar commercial lines product and deal with covering the exposure of people using their personal auto in the course of their business, whether it be food delivery or real estate agents,” says Fuldner. “Once [insurers] understand that, the conversation really changes to talking about business opportunities for those carriers to build products that embrace ridesharing as a concept.”

The biggest change that is necessary for the insurance industry to price this risk accordingly, which seems to be the biggest hurdle, says Fuldner, is to look at usage-based pricing as opposed to unit-based. The demand and need for part-time drivers is there, he says, and the sooner insurers change their mindset on pricing the more opportunity will be available to them.

“[Ridesharing] is a really outstanding example of how usage-based insurance has created a large economic opportunity for the industry,” he says. “And the insurers who say ‘How can we price it?’ instead of ‘We don’t know how to price it’ will create a new product for this market.”

AmWins’ Maucere says in the meantime, agents and brokers need to make sure they are asking their taxi and limo clients the important questions to make sure clients are not participating in these ventures without proper coverage or expecting their insurer to cover them for a service that is actually excluded.

“Ask all the questions and don’t just assume when they say they have a limo it’s just a limo service. Or when they say they are starting up a new business ask what the car is going to be used for,” he says. “Any good retail producer does these things. If they understand what they are looking at and can understand the underwriting process, that will help us.”